Credit Connect

After the global financial crisis in 2008 that impacted millions of people across the UK, it seems many people believe the current situation offers a positive economic outlook and less doom and gloom. However, have we been too hasty in engaging a better outlook? Have the lessons of the financial crisis really been learnt?

Credit card spending
After the banks restricted their lending during the crisis, we are now seeing an incredibly liberal approach to credit card lending. The increase in credit card borrowing is due in large part to the low-interest rates that have opened up a favourable credit facility. Unfortunately, with the low interest and easier credit approval, this is leading to high levels of personal debt.
Earlier in 2017, there was a significant increase in borrowing (through credit cards and personal loans), the Bank of England’s analysis showed an increase in lending of £1.4 billion. With over 30 million UK residents with a credit card, it is no surprise that private debt, through both secured and unsecured debt, is over £1.5 trillion.

The plague of persistent debt
Persistent debt is categorised when consumers are paying more in charges and interest and other related fees than they do on the principal debt amount. Worryingly, the Financial Conduct Authority (FCA) estimates that there are 3.3 million people in Britain who are in a persistent debt problem.

It is also predicted that debt is long-term, with over 650,000 credit card holders having over three years’ worth of ongoing debt. This use of credit cards and the associated debt is at an 11-year high. In fact, the average UK adult owes around £30,000 and 9.45 million people have no savings at all.
What does this mean?

The relaxed attitude towards borrowing poses a worry for individuals and the economy as a whole. Personal debt is growing, with 51 million people in the UK owing an average of £3,737 through credit cards and loans. This is only unsecured debt and doesn’t take into account the vast amounts people owe through secured debt options such as a mortgage.

The debt problem makes people exceedingly vulnerable should there be another financial crisis or economic downturn, those with increasingly growing debt will really struggle should inflation rise and if wage growth stagnates, much like it did in the last economic crisis. Those who are most vulnerable are the ones in the lower earning bracket.

The debt doesn’t just affect the individuals who are borrowing. There is a problem of national debt too. Incredibly, the debt for the UK, if attributed the every single person (including children) in the UK equates to £24,900 each. This is a huge burden on the government which can affect trade whereby investors are reluctant to loan when there is a large and growing debt problem.
How will Brexit affect the debt problem?

Since Brexit, forecasters have been downgrading the growth of the UK economy. 2018 was predicted to bring a growth of 2.1%, however, since Brexit, this has been slashed to 1.6%. Slower economic growth leads to increased borrowing. In fact, the Office for Budget Responsibility has predicted that government borrowing will reach an enormous £1.9 trillion by 2019.
How will it affect me?

Unfortunately, Brexit and national debt will have repercussions for us all with higher taxes predicted as well as reduced public spending to cover the deficit. Add to the other woes that Brexit brings such as slower job creation and the suspected ‘bill’ for leaving the EU; we can only sense that the doom of the crash in 2008, will linger in the UK for many years to come.